Why your borrowing capacity is probably lower than six months ago
The interest rate rises over the past six months has made it difficult for some Australians to qualify for a home loan and has made it more important they seek advice from a mortgage broker.
Every rate increase of 0.50% effectively reduces the average borrowing capacity by approximately 5%, according to the Reserve Bank’s head of domestic markets, Jonathan Kearns.
Since May, the Reserve Bank has increased the cash rate by 2.50% which means the average person’s borrowing capacity has fallen by about 25%.
The key words here are ‘average’ and ‘about’ because borrowing capacity varies not just from person to person but lender to lender. Two banks can offer the same borrower very different loan amounts; sometimes, they could be more than $100,000 apart.
With borrowing conditions tightening, it’s vital to seek guidance from an expert broker.
We work with a broad panel of lenders, so we know which lenders are more likely to offer higher loan amounts so can buy the property you really want, instead of settling for less.
Rental market conditions strongly favour investors
New analysis has revealed two big reasons why rents, which are already rising steeply, are set to continue increasing.
First, the number of properties listed for rent is much lower than pre-pandemic times in both capital cities and regional areas, according to PropTrack economist Angus Moore – therefore supply has fallen.
Second, Australian Bureau of Statistics data show a significant increase in migrant and foreign student numbers – meaning demand is rising.
“Extra demand from returning migration amid tight housing availability will contribute to the ongoing rapid advertised rent price growth we are seeing,” he said.
“We’re already seeing signs consistent with that dynamic. Rents are growing especially quickly in areas that recent migrants typically move to – these are mostly inner-city areas, often near major universities.”
Mr Moore said “rents are likely to continue growing briskly” in the foreseeable future.
“Vacancy rates are low across much of the country and, with population growth returning, rental demand shows little sign of tempering.”
How different buyer groups are responding to the changing market
Home loan activity has fallen since earlier in the year, but demand among first home buyers has held up better than that of other buyer groups.
Between April (when national property prices peaked) and August (the most recent month for which we have data) total home loan commitments fell 13.9%, according to the Australian Bureau of Statistics.
However, the decline varied between different buyer groups:
- Investors down 20.1%
- Subsequent home buyers (owner-occupiers) down 10.8%
- First home buyers (owner-occupiers) down 9.9%
CoreLogic’s head of residential research, Eliza Owen, found first home buyer demand for finance during downturns has traditionally been resilient, with smaller falls in demand compared to the other two groups, and sometimes even increases.
Ms Owen said there were two reasons for this:
- Governments introduced first home buyer incentives during downturns
- Price drops made it easier for first home buyers, reducing the deposit amount required
If you are buying, re-financing or have any questions, contact me on the below information.
TAG Finance and Loans
Sal Cinque | CEO
03 9886 0800 | loans@tagfinancial.com.au
Disclaimer: The information contained on this page is general in nature. Professional advice should be sought before acting on any aspect on this page. TAG Finance and Loans Pty Ltd ABN 25 609 906 863 Credit Representative Number 483873 National Mortgage Brokers Pty Ltd ABN 88 093 874 376 Australian Credit License 391209.